So let me get this straight, “
The Greatest Story Never Told,” which is
Larry Kudlow’s description of the current U.S. economy, is built upon a banking and financial system that over the last 90 days has needed emergency funding for
Citigroup (C),
Countrywide Financial (CFC),
MBIA (MBI), UBS AG (UBS). Also,
Fannie Mae (FNM),
Freddie Mac (FRE) and
Washington Mutual have slashed their dividends and are weighing their options for additional capital. The Fed has slashed its Fed Funds rate three times and its Discount Rate four times as well as injecting untold billions into the world's financial system via its open market operations that would make
John Law turn red.…..The root of the problem is that over the past three years, and to some extent, the past 20-years, we've sucked at the teat of the world’s greatest and grandest credit bubble ever!!! And not only had incomes become increasingly more and more dependent on transactional business (the trading of assets amongst one and other); borrowing and leveraging against these assets who’s value, to a large extent, were predicated on the leveraging throughout the entire economy and credit system had also supplanted income making endeavors as the primary source of "wealth creation". Not saving or investment in capital equipment. As leverage has a way of multiplying, thanks to the fractional banking system, increasing asset values were dependent upon constantly attracting that marginal (next) buyer; and also to a great extent, the ability for that buyer to arrive at the seen was predicated upon his or her ability to borrow money against assets that were also puffed-up due to the same circular logic (the world's greatest credit bubble). The credit bubble is now crashing, albeit at a pace that is much slower due to the extraordinary efforts of Messieurs
Paulson,
Bernanke,
et al. And by extension, assets of essentially every stripe, with mountains of toxic debt acting as its foundation, are in early stages of decline (or crash). We're essentially witnessing the last five to ten years (and possibly more) going in reverse. Where it stops, no one knows?
But the magnitude of the problem is massive. Such heavy-handed and coordinated efforts by The U.S. Fed, U.S. Treasury,
foreign central banks, Wall Street investment banks, U.S. Money Center Banks, Singapore,
Abu Dhabi, and on and on is simply unprecedented and should give folks pause. What in gods name do they know? We will soon find out that these folks are mere mortals and that wealth cannot be created by debasing the purchasing power of a country's currency neither can an over-lending crisis be cured with even more lending. With the Dow
Industrials and the S&P 500 just 5.4% and 5.6% off their all-time highs respectively (as I write), I envision considerably more pain for owners of assets all over the globe amidst an unwinding of the world's most spectacular credit bubble in all of history. Strap in, this could get bumpy.
